Taxes

Save $$$ using Donor-Advised Funds

Donor-Advised Funds(DAFs) are a great way to give to charities and gain tax benefits at the same time. Here’s a quick guide on what DAFs are, and how they work.

David Korpel

@EngageCPA

David is a CPA and founder of ENGAGE - a firm that can speak to creatives about their finances and tax compliance in a manner that is digestible to business owners who don’t speak accounting and tax. He works with hundreds of small business owners across various industries - creative clients, graphic designers, photographers, videographers, full-time gamers, real estate investors, retail stores, pet shops, and so on - to relieve the stress of financials and tax filings. Learn more about David's practice at engagecpas.com.

DAFs are becoming more popular among investors and donors because of their simplicity and flexibility, and are believed to be one of the fastest-growing charitable giving vehicles. Here’s a a quick primer on Donor-Advised Funds (DAF): what they are and how they’re uniquely positioned to save you money on taxes while allowing you to donate to your favorite charity 😀

What is a Donor-Advised Fund (DAF)?

A donor-advised fund allows you to make a charitable contribution and receive an immediate tax deduction. While your money is in a specific DAF account, your investment grows tax-free until you’re ready to donate to any IRS-qualified public charity.

A donor advised Fund (DAF) allows you to make donations and save in taxes

What assets can I donate to a DAF?

Donor-advised funds are flexible. You can easily set them up, and contribute a wide range of assets. Generally accepted assets include:

  • Cash equivalents, such as checks or cash positions from a brokerage account
  • Publicly traded stocks or mutual fund shares
  • Bitcoin and other cryptocurrencies

Why should I donate my money to a DAF?

Because you’re eligible for an immediate tax deduction as soon as you make a donation. If you donate cash or long-term, appreciated assets, then you're generally eligible for an income tax deduction of up to 60% and 30% of your adjusted gross income (AGI), respectively. For gifts that exceed the AGI limits, you have a 5 year carry-forward deduction to maximize the full value of your donation.

In addition, you can now donate a significant amount to your favorite charity without making a large cash outflow. Since your money grows tax-free within the DAF, you can theoretically have a $1,000 investment appreciate to $10,000 - all of which will be donated to the charity of your choosing.

How do I donate to a DAF?

Most traditional brokerages, like Schwab and Fidelity, have a dedicated DAF account that’s accessible via your account. You can also check out Daffy, a new startup that makes it easy to donate to DAFs.

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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult your tax professional. If you're looking to work with an accountant and need help finding someone, leave your information here, and we'll connect you.

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